The
Southeastern
Thrift
and Bank
Fund, Inc.
SEMIANNUAL REPORT
June 30, 1997
DIRECTORS
Victor L. Andrews
Franklin C. Golden
Robert G. Freedman
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware III
OFFICERS
Victor L. Andrews
Chairman
Franklin C. Golden
President
James B. Little
Treasurer
James K. Schmidt
Vice President
Renaldo Pascual
Secretary
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN, TRANSFER AGENT,
DISTRIBUTION DISBURSING AGENT
AND REGISTRAR
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
LEGAL COUNSEL
Kilpatrick & Cody
1100 Peachtree Street
Atlanta, Georgia 30349-4530
Listed: NASDAQ Symbol: STBF
John Hancock Closed-End Funds:
1-800-843-0090
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
We are happy to report that financial stocks, including banks and
thrifts, turned in another strong performance for the last six months.
Even with a brief spike in interest rates at the end of the first
quarter when the economy posted sizzling growth, the broad market as
measured by the Standard & Poor's 500 Stock Index managed to post a
return of 20.60% in the first half of the year. Financial stocks were
equally prosperous, and for the six months ended June 30, 1997, the Fund
posted a total return of 21.58% at net asset value.
As portfolio manager Jim Schmidt details in his commentary on the
following pages, the environment remains very favorable for financial
stocks. The economy appears to be staying in its moderate growth path,
despite periodic spurts of strength, and inflation remains tame. What's
more, industry fundamentals remain strong.
A 1 1/4" x 1" photo of Dr. Victor L. Andrews, Chairman of the Board of
Directors, flush right, next to second paragraph.
During the earlier years of the '90s, the prices of financial services
stocks benefited from some powerful economy-wide drivers, namely slowly
subsiding interest rates, macroeconomic expansion and mergers and
acquisitions. The banking industry still has a long way to go in
shrinking its great numbers, and in our view that should keep Fund
portfolio opportunities ample. Turnover in portfolio themes is
inevitable and ceaseless. One can speculate fruitfully on the outlines
of new ones. Sooner or later, it seems, Congress must finally open the
way wider for bank expansion into other lines of business, and some
banks will surpass others in resulting profit opportunities. In the
spreading collision of product offerings between banks and non-bank
financial service companies, there will be profitable winners. Our job
is to find them.
In the stock market overall, the prolonged lag of mid-sized and smaller
capitalization valuations behind the large caps cannot continue forever.
History says so in forceful terms. The catch-up may play into the Fund's
hand, especially with its experience in regional markets. Also, overall,
the American appetite for services seems insatiable, and financial
services companies are no exception. Given all this, our confidence
continues in the availability of good performance among financial
service stocks in the southeast.
Very truly yours on behalf of the Directors and Officers of the Fund.
/S/ VICTOR L. ANDREWS
DR. VICTOR L. ANDREWS, CHAIRMAN OF THE BOARD OF DIRECTORS
BY JAMES K. SCHMIDT, CFA, PORTFOLIO MANAGER
The Southeastern Thrift
and Bank Fund, Inc.
Stock market and bank stocks keep advancing
On the heels of a strong 1996, the stock market continued its upward
march during the last six months. For the first two months of 1997, the
market moved up in a straight shot before meeting a stiff headwind of
inflationary concern and rising interest rates in mid-March. Early in
1997, the engine of economic growth began to overheat and the Federal
Reserve moved toward a more restrictive monetary policy to pre-empt an
inflation spike. The stock market gyrated wildly before rebounding in
late April as signs of more muted economic growth appeared. For the six
months ended June 30, 1997, the broader market, as measured by the
Standard & Poor's 500 Stock Index returned 20.60%, including reinvested
dividends.
Bank stocks were not immune to rising interest rates and the market's
volatility, first rising at the beginning of the year, then softening in
March and April and finally rallying in the latter part of the period.
Even with the volatility, the Fund performed very well. For the six
months ended June 30, 1997, The Southeastern Thrift and Bank Fund posted
a total return of 21.58% at net asset value. That compared with the
19.89% return for the average open-end financial services fund,
according to Lipper Analytical Services, Inc.
A 2 1/2" x 3 1/2" photo of the Fund management team. Caption reads:
"James K. Schmidt (seated) and Fund management team members (l-r): James
Boyd, Thomas Finucane, Patricia Ouimet, Gerard Cronin."
"Early in
1997, the
engine of
economic
growth
began to
overheat..."
Interest rates vs. bank earnings
Looking forward, we believe it is still possible that the Fed could
raise interest rates to pre-empt an inflation surge. As rates move up,
investors invariably sell bank stocks on the assumption that higher
rates have a negative impact on bank earnings. We find this behavior
mistaken, since in recent years banks have been able to adjust both loan
and deposit pricing in step and keep earnings on track. Consider the
last time interest rates moved up sharply, a 15-month period in 1994-95.
Short-term interest rates rose by 300 basis points (3.0%), much more
than we are forecasting for 1997. The impact on bank margins was slight.
According to FDIC data, net interest margins -- the spread, or
difference, between what banks receive on their loans and what they pay
out to depositors -- in the commercial banking industry declined only
modestly, from 4.36% to 4.29%. Net interest income actually increased
due to growth in earning assets.
Chart with heading "Top Five Common Stock Holdings" at the top of the
left hand column. Chart lists five holdings: 1) BB&T Corp. 4.8%; 2)
Union Planters Corp. 4.5%; 3) Southtrust Corp. 4.1%; 4) First Union
Corp. 3.4%; 5) NationsBank Corp. 3.0%. A footnote below states "As a
percentage of total net assets on June 30, 1997".
"Bank stocks
were not
immune to
...the
market's
volatility..."
Earnings march upward
In 1996, bank earnings once again shattered prior records, as net income
for the nation's 9,500 commercial banks exceeded $50 billion for the
first time. The macroeconomic triple play of moderate growth, low
inflation and stable interest rates drove bank earnings-per-share above
consensus estimates. Banks reported wide interest margins, stable
overhead levels and lower share counts due to stock repurchases. Credit
costs, mostly due to elevated levels of problem loans in consumer
portfolios, rose moderately off an unsustainably low base and had little
impact on bottom line profitability. In 1997, our model forecasts 12%
earnings growth over 1996. First quarter 1997 reports corroborated this
thesis, as the 1996 trends continued: wide spreads (despite rising
rates), controlled expenses and share repurchases all are driving
earnings-per-share. Our outlook for bank earnings for the rest of 1997
remains very positive.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is "Investment"; the header for the right column is
"Recent performance...and what's behind the numbers." The first listing
is "Trustmark Corp." followed by an up arrow and the phrase "Concerns
fade about management succession." The second listing is "First Virginia
Banks" followed by an up arrow and the phrase "Fund acquired stock in
Premier Bankshares deal." The third listing is "Raymond James Financial"
followed by an up arrow and the phrase "Shares rise on merger
speculation." Footnote below reads "See "Schedule of Investments".
Investment holdings are subject to change."
While the decline in financial stocks in March and April provided a
tremendous buying opportunity, the recent rally has not diminished the
group's attractive valuation status. Despite a healthy upward move in
1997, the relative price-earnings ratio multiple of the banking group
still stands at only 70% of the S&P 500 multiple.
More consolidation and deregulation
In the first six months of 1997, three more of our stocks announced that
they were being acquired. The southeastern states have generally not
been the epicenter of merger activity in the last several years. We
think that this is in the process of changing. One of our holdings,
American National Bancorp of Maryland, recently announced a merger with
a mid-sized Virginia bank, Crestar Financial. That same week Central
Fidelity Banks, another major Virginia bank, agreed to be purchased by
Wachovia. These are the first of what we expect to be a series of
mergers in Virginia. This is a state we have termed a "battleground"
state because the consolidation activity there is still in its infancy.
Other battleground states where we have significant investments are
Alabama, Tennessee and Mississippi.
Bar chart with heading "Fund Performance" at the top of left hand
column. Under the heading is the footnote: "For the six months ended
June 30, 1997." The chart is scaled in increments of 5% from top to
bottom, with 25% at the top and 0% at the bottom. Within the chart there
are two solid bars. The first represents the 21.58% total return for The
Southeastern Thrift and Bank Fund, Inc. The second represents the 19.89%
total return for the average open-end financial services fund. Footnote
below reads: "The total return for The Southeastern Thrift and Bank Fund
is at net asset value with all distributions reinvested. The average
open-end financial services fund is tracked by Lipper Analytical
Services."
During the period, there was a beneficial change involving newly relaxed
regulations governing securities activities. As we had forecast, on
March 1 the Federal Reserve allowed banks to derive 25% of their
business from underwriting stocks and bonds, up from the prior 10%
limit. Thus, without any legislative modification to the Glass-Steagall
Act, banks have been give a "back-door" entry into the securities
business. We expect the majority of the publicly traded brokerage firms
to be acquired by the major commercial banks during the next five years.
Because the major theme of the Fund is bank and thrift investing, our
brokerage holdings remain a smaller percentage of the Fund. Within the
last year, however, we have established positions in two premier
southeastern brokerage firms, Interstate-Johnson Lane and Raymond James
Financial.
Favorable outlook
We continue to invest in undervalued regional banks and thrifts with
healthy earnings fundamentals which are in the path of consolidation. In
particular, we believe that savings and loan stocks in general have
become increasingly attractive investment vehicles. As has been the case
historically, the savings and loans are less expensive than commercial
banks. At the end of June, the average thrift traded at 130% of book
value, while 200% of book value was the norm for commercial banks.
Interestingly, thrifts are increasingly looking like banks. Many of them
are building a commercial lending capability and introducing more of the
fee-producing services that banks have. Last fall, Congress cut the
deposit insurance premium that thrifts pay to the FDIC by about 80%,
bringing them more in line with banks and presumably paving the way for
an eventual merger of the Bank Insurance Fund with the Savings
Association Insurance Fund.
"Our outlook
for bank
earnings
for the
rest of 1997
remains very
positive."
We remain confident about the prospects for bank and thrift stocks. Even
though any further rise in interest rates might temporarily put the
sector under pressure, we believe, as we stated earlier, that the
conventional wisdom no longer holds true that rising rates affect bank
earnings. Bank and thrift fundamentals remain as strong as ever, and we
expect industry consolidation to continue for years.
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
Sector investing is subject to different, and sometimes greater, risks
than the market as a whole.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance
sheet and shows the value of what the Fund owns, is due and
owes on June 30, 1997. You'll also find the net asset value
per share as of that date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- ----------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Notes A & C:
Common stocks (cost - $35,346,926) $ 82,889,478
Preferred stock (cost - $100,000) 137,500
Short-term investments (cost - $25,073) 25,073
Joint repurchase agreement (cost - $1,031,000) 1,031,000
-------------
84,083,051
Cash 142
Receivable for investments sold 410,387
Dividends and interest receivable 355,188
Other assets 325,000
-------------
Total Assets 85,173,768
- ----------------------------------------------------------------
Liabilities:
Payable to John Hancock Advisers, Inc. - Note B 54,112
Accounts payable and accrued expenses 43,989
-------------
Total Liabilities 98,101
- ----------------------------------------------------------------
Net Assets:
Capital paid-in 32,397,863
Accumulated net realized gain on investments 4,346,293
Net unrealized appreciation of investments 47,580,052
Undistributed net investment income 751,459
-------------
Net Assets $ 85,075,667
================================================================
Net Asset Value Per Share:
(based on 3,984,966 shares outstanding - 50 million
shares authorized with $0.001 per share par value) $ 21.35
================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Statement of Operations summarizes the Fund's investment
income earned and expenses incurred in operating the Fund.
It also shows net gains for the period stated.
Statement of Operations
Six months ended June 30, 1997 (Unaudited)
- ----------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (including $10,080 received from
affiliated issuers) $ 1,062,624
Interest 62,736
-------------
1,125,360
-------------
Expenses:
Investment management fee - Note B 249,138
Administration fee - Note B 57,493
Trustees' fee 27,135
Custodian fee 18,843
Legal fees 16,547
Auditing fee 13,933
Printing 6,955
Miscellaneous 4,634
Transfer agent fee 4,115
-------------
Total Expenses 398,793
- ----------------------------------------------------------------
Net Investment Income 726,567
- ----------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 4,346,293
Change in net unrealized appreciation/depreciation
of investments 10,022,494
-------------
Net Realized and Unrealized Gain
on Investments 14,368,787
- ----------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $15,095,354
================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
----------------- -----------------
<S> <C> <C>
Increase in Net Assets:
From Operations:
Net investment income $ 1,116,773 $ 726,567
Net realized gain on investments sold 4,043,580 4,346,293
Change in net unrealized appreciation/depreciation of investments 9,095,550 10,022,494
--------------- ---------------
Net Increase in Net Assets Resulting from Operations 14,255,903 15,095,354
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income ($0.2740 and none per share, respectively) ( 1,091,881) --
Distributions from capital gains ($0.1207 and none per share, respectively) ( 480,985) --
--------------- ---------------
Total Distributions to Shareholders ( 1,572,866) --
--------------- ---------------
Net Assets:
Beginning of period 57,297,276 69,980,313
--------------- ---------------
End of period (including undistributed net investment income of $24,892
and $751,459, respectively) $ 69,980,313 $ 85,075,667
=============== ===============
<CAPTION>
Analysis of Common Share Activity:
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 3,984,966 $ 28,835,268 3,984,966 $ 32,397,863
Reclassification of net long-term capital gains
(net of federal income taxes of $1,411,141 and
$1,918,367,respectively) - Note A -- 3,562,595 -- --
------------- ------------ ------------- ------------
Shares outstanding, end of period 3,984,966 $ 32,397,863 3,984,966 $ 32,397,863
============= ============= ============= =============
The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of
the previous period. The difference reflects earnings less expenses, any investment gains and losses and
distributions paid to shareholders.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for each share of common stock outstanding throughout the period indicated, investment
returns, key ratios and supplemental data are listed as follows:
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL
YEAR ENDED JUNE 30, PERIOD ENDED YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------- DECEMBER 31, ---------------------- JUNE 30, 1997
1992(a) 1993(a) 1994(a) 1994(a, b) 1995(a) 1996 (UNAUDITED)
--------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
Beginning of Period $ 3.860 $ 6.430 $ 9.040 $ 10.830 $ 9.930 $ 14.380 $ 17.560
--------- --------- --------- --------- --------- --------- ---------
Net Investment Income 0.050 0.055 0.105 0.075 0.219 0.280 0.182
Net Realized and
Unrealized Gain (Loss)
on Investments 2.580 2.555 2.232(c) ( 0.670)(c) 4.513(c) 3.295(c) 3.608
--------- --------- --------- --------- --------- --------- ---------
Total from Investment
Operations 2.630 2.610 2.337 ( 0.595) 4.732 3.575 3.790
--------- --------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net
Investment Income ( 0.050) -- ( 0.103) ( 0.130) ( 0.219) ( 0.274) --
Distributions from
Net Realized Gain on
Investments Sold -- -- ( 0.444) ( 0.175) ( 0.063) ( 0.121) --
Distributions from
Paid-in Capital ( 0.010) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total Distributions ( 0.060) -- ( 0.547) ( 0.305) ( 0.282) ( 0.395) --
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End
of Period $ 6.430 $ 9.040 $ 10.830 $ 9.930 $ 14.380 $ 17.560 $ 21.350
========= ========= ========= ========= ========= ========= =========
Per Share Market Value,
End of Period $ 5.500 $ 7.875 $ 10.625 $ 9.625 $ 13.750 $ 16.375 $ 18.875
Total Investment Return
at Market Value 78.15% 43.18% 42.98% ( 6.53%) 45.66% 21.96% 15.27%(f)
Ratios and Supplemental
Data
Net Assets, End of
Period (000s omitted) $ 25,623 $ 36,024 $ 43,145 $ 39,548 $ 57,297 $ 69,980 $ 85,076
Ratio of Expenses to
Average Net Assets 2.17% 1.69% 1.46% 1.46%(e) 1.31% 1.13% 1.05%(e)
Ratio of Net Investment
Income to Average Net
Assets 1.06% 0.71% 1.01% 1.35%(e) 1.73% 1.79% 1.91%(e)
Portfolio Turnover Rate 42% 42% 23% 7% 14% 13% 11%
Average Brokerage
Commission Rate(d) N/A N/A N/A N/A N/A $ 0.0700 $ 0.0700
(a) All per share amounts and net asset values have been restated to reflect the 2 for 1 stock split effective November 30,
1995.
(b) Effective October 24, 1994, the fiscal period end changed from June 30 to December 31.
(c) Net of federal income taxes of $0.48 for December 31, 1996, $0.35 for December 31, 1995, $0.215 for December 31, 1994
and $0.260 for June 30, 1994 on net long-term capital gains retained by the Fund.
(d) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(e) On an annualized basis.
(f) Not annualized.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net
investment income, dividends and gains (losses) of the Fund. It shows how the Fund's net asset value for a share has changed
since the end of the previous period. It also shows the total investment return for each period based on the market value of
fund shares. Additionally, important relationships between some items presented in the financial statements are expressed in
ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Fund on June 30, 1997. It's divided into three main categories:
common stocks, preferred stocks and short-term investments. The stocks
are further broken down by location. Under each location is a list of
the stocks owned by the Fund.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ------------------- -------
<S> <C> <C>
COMMON STOCKS
Banks, Savings and Loans - Southeastern (by state)
Alabama (14.09%)
Colonial BancGroup, Inc. 98,556 $ 2,389,983
Compass Bancshares, Inc. 39,750 1,336,594
First Southern Bancshares 51,917 687,900
Peoples Banctrust, Co., Inc. 44,000 946,000
Regions Financial Corp. 65,800 2,080,925
Security Federal Bancorp., Inc. * + 33,600 571,200
Southern Banc Co., Inc. 32,900 503,781
Southtrust Corp. 83,930 3,472,604
-------------
11,988,987
-------------
Florida (5.21%)
American Bancshares, Inc.* 41,000 374,125
BankUnited Financial Corp. (Class A) * 20,000 197,500
Barnett Banks, Inc. 20,000 1,050,000
Commercial Bankshares, Inc. 23,500 446,500
Community Savings, FA 26,666 586,652
First Palm Beach Bancorp. 15,000 510,000
Seacoast Banking Corp. (Class A) 42,500 1,264,375
-------------
4,429,152
-------------
Georgia (6.36%)
ABC Bancorp. 12,500 212,500
CCF Holding Co. 30,700 506,550
Eagle Bancshares, Inc. 60,000 1,072,500
First Liberty Financial Corp. 68,650 1,475,975
Flag Financial Corp. 67,500 966,094
Premier Bancshares Inc. 68,600 1,179,062
-------------
5,412,681
-------------
Louisiana (3.19%)
ISB Financial Corp. 25,000 650,000
Teche Holding Co. 25,000 475,000
Whitney Holding Corp. 37,500 1,584,375
-------------
2,709,375
-------------
Mississippi (5.27%)
BancorpSouth, Inc. 30,200 875,800
Deposit Guaranty Corp. 35,000 1,102,500
Hancock Holding Co. 19,665 963,585
People Holding Co. (The) 15,600 604,500
Trustmark Corp. 33,500 938,000
-------------
4,484,385
-------------
North Carolina (24.00%)
BB&T Corp. 90,435 4,069,575
CCB Financial Corp. 30,007 2,194,262
Centura Banks, Inc. 47,837 2,194,522
First Citizens BancShares, Inc. (Class A) 16,556 1,440,372
First Savings Bancorp., Inc. 9,910 220,498
First Union Corp. 31,661 2,928,642
Green Street Financial Corp. 9,690 170,786
Haywood Bancshares, Inc. 53,400 914,475
LSB Bancshares, Inc. 33,202 672,340
Mutual Community Savings Bank * 17,070 183,503
NationsBank Corp. 39,624 2,555,748
Piedmont Bancorp., Inc. 20,000 207,500
Rowan Bankcorp, Inc. * 20,000 350,000
South Street Financial Corp. 40,000 660,000
Stone Street Bancorp, Inc. 40,000 872,500
United Carolina Bancshares, Inc. 15,000 780,000
-------------
20,414,723
-------------
South Carolina (6.46%)
American Federal Bank, FSB 60,000 1,935,000
Carolina First Corp. 22,593 333,247
First Financial Holdings, Inc. 45,000 1,440,000
PALFED, Inc. 94,960 1,590,580
Plantation Financial Corp. 20,000 200,000
-------------
5,498,827
-------------
Tennessee (8.35%)
First American Corp. 26,558 1,019,163
First Tennessee National Corp. 47,240 2,267,520
Union Planters Corp. 73,579 3,816,911
-------------
7,103,594
-------------
Virginia (6.09%)
Commonwealth Bankshares, Inc.* 22,472 250,001
Community Bankshares Inc. 1,500 28,500
F & M National Corp. 25,625 666,250
FFVA Financial Corp. 26,000 708,500
First Virginia Banks, Inc. 21,800 1,314,812
Guaranty Financial Corp. 20,000 212,500
Mainstreet Bankgroup, Inc. 55,000 1,512,500
Marathon Financial Corp 10,000 61,250
Salem Bank & Trust 21,630 324,450
Security Bank Corp.* 11,000 106,563
-------------
5,185,326
-------------
TOTAL BANKS, SAVINGS AND
LOANS - SOUTHEASTERN 79.02% 67,227,050
------------- -------------
Banks and Thrifts - Other Regions (13.10%)
American National Bancorp., Inc. (MD) 67,300 1,295,525
Banc One Corp. (OH) 16,988 822,856
CB Bancshares, Inc. (HI) 11,477 401,695
Cullen / Frost Bankers., Inc. (TX) 41,000 1,737,375
Equitable Federal Savings Bank * (MD) 17,000 629,000
First of America Bank Corp. (MI) 9,394 429,776
Mercantile Bancorp., Inc. (MO) 17,910 1,088,032
North Central Bancshares, Inc. (IA) 20,000 310,000
Provident Financial Group, Inc. (OH) 30,000 1,282,500
Riggs National Corp. (DC) 15,000 309,375
Roosevelt Financial Group, Inc. (MO) 45,000 990,000
Simmons First National Corp.
(Class A)(AR) 30,000 900,000
Summit Bancshares, Inc. (TX) 27,000 742,500
Texas Regional Bancshares, Inc.
(Class A)(TX) 5,000 210,000
-------------
TOTAL BANKS AND
THRIFTS - OTHER REGIONS 13.10% 11,148,634
------------- -------------
Other (5.31%)
Delta Financial Corp.* 5,000 95,625
HomeSide, Inc.* 10,000 218,750
Household International, Inc. 5,000 587,188
Interstate/Johnson Lane, Inc. 22,000 517,000
Matrix Capital Corp.* 10,000 140,000
Raymond James Financial, Inc. 57,150 1,564,481
Sirrom Capital Corp. 10,000 345,000
Ugly Duckling Corp.* 36,500 565,750
Willis Lease Finance Corp.* 20,000 252,500
Wilshire Financial Services Group, Inc.* 14,000 227,500
-------------
4,513,794
-------------
TOTAL COMMON STOCKS
(Cost $35,346,926) 97.43% 82,889,478
------------- -------------
PREFERRED STOCK
Republic Security Financial Corp.,
Ser C 7.00%, (Florida) 10,000 137,500
-------------
TOTAL PREFERRED STOCK
(Cost $100,000) 0.16% 137,500
------------- -------------
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
-------- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Cash Equivalents
Deposits in Mutual Banks $ 25 $ 25,073
-------------
Joint Repurchase Agreement
Investment in a joint
repurchase agreement
transaction with Toronto
Dominion Securities
USA, Inc. Dated 06-30-97,
Due 07-01-97 (Secured by
U.S. Treasury Notes,
5.625% thru 6.375%
due 04-30-99 thru
06-30-02) - Note A 5.97% 1,031 1,031,000
-------------
TOTAL SHORT TERM INVESTMENTS 1.24% 1,056,073
------------- -------------
TOTAL INVESTMENTS 98.83% $ 84,083,051
============= =============
* Non-income producing security.
+ Denotes an affiliated company in which the Fund has ownership of at least 5% of the voting
securities (see Note E of the Notes to Financial Statements).
The percentage shown for each investment category is the total value of that category as a percentage
of the net assets of the Fund.
See notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A --
The Southeastern Thrift and Bank Fund, Inc. (the "Fund") is a
diversified, closed-end management investment company registered under
the Investment Company Act of 1940. The Fund's primary investment
objective is long-term capital appreciation. Its secondary investment
objective is current income.
ACCOUNTING POLICIES
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Investments in listed securities are valued at
the last sales price on the exchange on which such securities are
primarily traded. Listed securities for which no sales are reported and
securities traded in the over-the-counter market are valued at the
average of the most recent bid and asked prices. Investment securities
for which no current market quotations are available are valued at fair
market value as determined in good faith under the direction of the
Fund's Board of Directors. Short-term investments which mature in less
than 61 days when acquired by the Fund are valued at amortized cost.
Short-term investments which mature in more than 60 days are valued at
current market value until the sixtieth day prior to maturity at which
time they are valued at amortized cost.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements whose underlying securities are obligations of the
U.S. government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME Securities transactions
are recorded on a trade date basis. Realized gain and loss from
securities transactions are recorded using specific lot basis. Dividend
income is recorded on the ex-dividend date and interest income,
including, where applicable, amortization of discount on short-term
investments, is recorded on the accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS Net investment income distributions are
generally distributed semiannually, and capital gains distributions are
generally distributed annually and both are recorded on the ex-dividend
date. Such distributions are determined in conformity with income tax
regulations. Due to permanent book/tax differences in accounting for
certain transactions, this has the potential for treating certain
distributions as return of capital as opposed to distributions of net
investment income or realized capital gains. The Fund has adjusted for
the cumulative effect of such permanent book/tax differences through
December 31, 1996, which has no effect on the Fund's net assets, net
investment income or net realized gains.
The Fund has the option and has chosen to retain and pay the applicable
federal income tax on $4,031,832 of its net long-term capital gains for
the fiscal period ended December 31, 1996.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment
company" by complying with the applicable provisions of the Internal
Revenue Code and will not be subject to federal income tax on taxable
income which is distributed to shareholders.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
NOTE B --
INVESTMENT ADVISORY AND
ADMINISTRATION FEES AND
TRANSACTIONS WITH AFFILIATES
The Adviser is the Fund's investment adviser and administrator in
accordance with the agreements described below.
The Fund operates under an investment advisory agreement which calls for
the Adviser to furnish office space, furnishings and equipment and to
provide the services of persons to manage the investment and
reinvestment of the Fund's assets and to continuously review, supervise
and administer the Fund's investment program. In return, the Fund has
agreed to pay the Adviser a monthly advisory fee at an annual rate of
0.65% of the Fund's average net assets, or a flat annual fee of $50,000,
whichever is higher. In addition, if total Fund expenses exceed 2% of
the Fund's average net assets in any one year, the Fund may require the
Adviser to reimburse the Fund for such excess, subject to a minimum fee
of $50,000.
The Fund has also entered into an administration agreement with the
Adviser pursuant to which the Adviser provides certain administrative
services required by the Fund. In return, the Fund has agreed to pay a
monthly administration fee at an annual rate of 0.15% of the Fund's
average net assets or a flat annual fee of $22,000, whichever is higher.
The Fund does not pay remuneration to its officers nor to any director
who may be employed by an affiliate of the Fund. Certain officers of the
Fund are officers of the Adviser.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1997, aggregated $8,377,412 and
$12,880,935, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended June 30, 1997.
The cost of investments owned at June 30, 1997 (excluding deposits in
mutual savings banks) for Federal income tax purposes was $36,502,999.
Gross unrealized appreciation and depreciation of investments aggregated
$47,688,677 and $108,625, respectively, resulting in net unrealized
appreciation of $47,580,052.
NOTE D --
SHARES REPURCHASED AND TENDER OFFERS
The Fund from time-to-time may, but is not required to, make open market
repurchases of its shares in order to attempt to reduce or eliminate the
amount of any market value discount or to increase the net asset value
of its shares, or both. In addition, the Board currently intends each
quarter during periods when the Fund's shares are trading at a discount
from the net asset value to consider the making of tender offers. The
Board may at any time, however, decide that the Fund should not make
share repurchases or tender offers.
SUBSEQUENT DISTRIBUTION
On July 21, 1997, the Directors voted to declare income dividends
on a semiannual basis. At that time, the Directors declared a dividend
from net investment income in the amount of $0.19 per share payable on
August 8, 1997 to shareholders of record as of July 28, 1997. Any
distributions from capital gains will continue to be made on an annual
basis.
NOTE E --
TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined by the Investment Company Act of 1940,
are those in which the Fund's holdings of an issuer represents 5% or
more of the outstanding voting securities of the issuer. A summary of
the Fund's transactions in the securities of these issuers during the
period ended June 30, 1997 is set forth below.
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITIONS
BEGINNING -------------------------------------- ENDING
SHARE SHARE SHARE SHARE REALIZED DIVIDEND ENDING
AMOUNT AMOUNT COST AMOUNT COST AMOUNT GAIN INCOME VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Security Federal Bancorp., Inc. 33,600 -- $ -- -- $ -- 33,600 $ -- $10,080 $571,200
</TABLE>
SUPPLEMENTAL INFORMATION
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which the Fund would acquire
a security for a relatively short period (usually not more than 7 days)
subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's
cost plus interest). The Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and with "primary
dealers" in U.S. government securities. The Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters
into repurchase agreements.
Repurchase transactions must be fully collateralized at all times, but
they involve some credit risk to the Fund if the other party defaults on
its obligations and the Fund is delayed or prevented from liquidating
the collateral. The Fund has established a procedure providing that the
securities serving as collateral for each repurchase agreement must be
delivered to the Fund's custodian either physically or in book-entry
form and that the collateral must be marked to market daily to ensure
that each repurchase agreement is fully collateralized at all times. In
the event of bankruptcy or other default by a seller on a repurchase
agreement, the Fund could experience delays in liquidating the
underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the
period while the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this
period, and expense of enforcing its rights.
DIVIDEND REINVESTMENT PLAN
The Fund offers its registered stockholders an automatic Dividend
Reinvestment Plan (the "Plan") which enables each participating
stockholder to have all dividends (indicates income dividends and/or
capital gains distributions) payable in cash reinvested by the Plan
Agent in shares of the Fund's Common Stock. However, stockholders may
elect not to enter into, or may terminate at any time without penalty,
their participation in the Plan by notifying State Street Bank and Trust
Company (the "Plan Agent") in writing. Stockholders who do not
participate will receive all dividends in cash.
In the case of stockholders such as banks, brokers or nominees who hold
shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of record ownership of shares. These
record stockholders will receive dividends under the Plan on behalf of
participating beneficial owners and cash on behalf of non-participating
beneficial owners. These recordholders will then credit the beneficial
owners' accounts with the appropriate stock or cash distribution.
Whenever the market price of the Fund's stock equals or exceeds net
asset value per share, participating stockholders will be issued stock
valued at the greater of (i) net asset value per share or (ii) 95% of
the market price. If the net asset value per share of the Fund's stock
exceeds the market price per share on the record date, the Plan Agent
shall make open market purchases of the Fund's stock for each
participating stockholder's account. These purchases may begin no sooner
than five business days prior to the payment date for the dividend and
will end up to thirty days after the payment date. If shares cannot be
purchased within thirty days after the payment date the balance of
shares will be purchased from the Fund at the average price of shares
purchased on the open market. Each participating stockholder will be
charged a pro rata share of brokerage commissions on all open market
purchases.
The shares issued to participating stockholders, including fractional
shares, will be held by the Plan Agent in the name of the stockholder.
The Plan Agent will confirm each acquisition made for the account of the
participating stockholder as soon as practicable after the payment date
of the distribution.
The reinvestment of dividends does not in any way relieve participating
stockholders of any federal, state or local income tax which may be due
with respect to each dividend. Dividends reinvested in shares will be
treated on your federal income tax return as though you had received a
dividend in cash in an amount equal to the fair market value of the
shares received, as determined by the prices for shares of the Fund on
the NASDAQ National Market System as of the dividend payment date.
Distributions from the Fund's long-term capital gains will be taxable to
you as long-term capital gains. The confirmation referred to above will
contain all the information you will require for determining the cost
basis of shares acquired and should be retained for that purpose. At
year end, each account will be supplied with detailed information
necessary to determine total tax liability for the calendar year.
All correspondence or additional information concerning the Plan should
be directed to the Plan Agent, State Street Bank and Trust Company, at
P.O. Box 8209, Boston, Massachusetts 02266-8209 (telephone 1-800-426-
5523).
NOTES
The Southeastern Thrift and Bank Fund, Inc.
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